To Demand or Not to Demand: On Quantifying the Future Appetite for CBDC
IMF Working Papers, January 20, 2023
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- To Demand or Not to Demand: On Quantifying the Future Appetite for CBDC
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Bibliographic details
- Authors: Marco Gross, Elisa Letizia
- Published: January 20, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400228780.001
Model and approach
- Structural, choice-theoretic model of banks, the central bank, the payment system, and the surrounding private sector economic environment.
- Model is deeply rooted in data and is used to run a structural counterfactual that introduces a Central Bank Digital Currency (CBDC) which is optionally interest-bearing.
- Model outputs can be used to estimate emerging CBDC-in-total-money shares, changes in deposit rate spreads to policy rates, impacts on reserve needs, rotation of profits between banks and central banks, and changes in monetary policy pass-through.
- Model codes to replicate results and to apply the model to other countries are made available with the paper.
Key quantitative findings
- Upper bound estimates for CBDC-in-money shares:
- "about 25 percent" for the U.S.
- "about 20 percent" for the euro area
- These upper bounds apply when CBDC would be remunerated at the policy rates and be perceived as “deposit-like” by the public.
- Actual take-up may likely be below such upper bound estimates.
Outcomes and channels analyzed
- Drop of deposit rate spreads to policy rates.
- Impact on reserve needs.
- Implied rotation of profits away from banks toward central banks.
- Potential for monetary policy pass-through to become stronger.
Policy implications and considerations
- CBDC remuneration at policy rates and public perception of CBDC as “deposit-like” are key determinants of upper-bound demand.
- Even with high potential shares (see Key quantitative findings), actual take-up may be lower, implying policymakers should consider behavioral and institutional factors that limit adoption.
- Effects on bank funding costs, reserve management, and central bank seigniorage should be assessed when evaluating CBDC implementation and design choices.
Replicability and use
- Model codes are provided to replicate all results and to apply the framework to other countries.
IMF Working Paper No. 2023/009 — "To Demand or Not to Demand: On Quantifying the Future Appetite for CBDC", Marco Gross and Elisa Letizia, January 20, 2023.
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